Do Housing Starts Reveal a Jobless Recovery?

Current data seem to indicate a jobless housing recovery—but the data are not telling us everything.

When the U.S. Department of Labor's Bureau of Labor Statistics (BLS) released its monthly employment report in early December, many were surprised to see that the construction sector reportedly lost 20,000 jobs in November. If the housing sector is finally showing signs of recovery, with housing starts up 3.6 percent in October over the previous month according to U.S. Census Bureau figures, how did the country lose so many construction jobs?

Economists have suggested a number of different explanations, ranging from jitters about the fiscal cliff to plain undercounting on the part of the BLS. "It is really odd when you consider that housing starts for the year are up more than 40 percent," says Robert Dietz, an economist at the National Association of Home Builders.

One explanation, Dietz tells ARCHITECT, is the multifamily-driven housing market. Many of the recent housing gains have come in the form of new apartments, which require less labor to build per housing unit. "We know from looking at Bureau of Economic Analysis data," Dietz says, "that every single-family home project employs, on average, three people" for one year of full-time work. This compares with just one man-year for a unit in an apartment or condominium building, according to an analysis done by NAHB in 2007. This is partly a result of the smaller average size of multifamily units—just 1,159 square feet compared to 2,480 square feet for single-family homes—but it is also due to economies of scale inherent in larger buildings, which share walls and utilities.

But even accounting for the rise in multifamily units, Dietz says, the nation should still be seeing better employment figures. Kermit Baker, chief economist at the AIA and professor at the Harvard Graduate School of Design, concurs. "Single-family starts have been extremely strong recently," Baker says. "So I don't think that would have [negatively] affected the most recent numbers in terms of construction."

Demand for architectural services for multifamily projects was down just slightly from October levels last month, according to the November AIA Architecture Billings Index, but that drop follows an October high score not seen since April 2005. November billings still indicate growth—the fourth straight month for growth in demand for architectural services. National billings across all sectors were at their highest level since November 2007.

Yet even given the strong performance of the multifamily sector in recent months, Dietz still cites undercounting in the BLS data as the most likely explanation for the loss in jobs.

"The establishment survey surveys established businesses," says Dietz, referring to the latest numbers showing a net loss of 20,000 construction jobs in the last month. The initial survey "is not as precise as later surveys that involve calling households directly and asking them about employment. Establishment surveys do not capture new entrants into the market, which could be significant in highly decentralized industries like construction, and especially homebuilding."

Referring to the highly decentralized homebuilding sector, Dietz speculated that "it's probably much harder for the the BLS to survey a sector that's dominated by subcontractors and small firms, than it is in manufacturing, for example, which may be more dominated by long-term established, more corporate businesses."

Revisions to the BLS data may yet reveal the jobs in the jobless recovery. "One hint of that is that when [the BLS] announced the benchmark revision a few months ago, the second largest revision in percentage terms was for the construction sector," Dietz says. Back in September, the total number of jobs was revised up by 85,000, or 1.6 percent of the total. By contrast, job numbers in the manufacturing sector—to use Dietz's example of an industry whose employment figures are easier to measure—were revised down just 0.2 percent. Preliminary revisions for the latest BLS data are due in February.

There are also other theories for the drop-off in jobs numbers. "The threat of the fiscal cliff," wrote Ken Simonson of the Associated General Contractors of America in a newsletter last week, "is already having an impact on construction employment, according to a survey of 551 construction firms AGC conducted on Nov. 28–Dec. 6." (The AGC survey, however, does not poll single-family homebuilders, instead focusing on firms building larger commercial, industrial, and multifamily projects.) And Evan Soltas, a writer for The Washington Post's Wonkblog, posited that the extra demand for construction labor was being met by existing workers working longer hours, citing data released by the BLS.

"That could be part of it, but it's only a few hours—it doesn't seem significant,” Dietz says. "However you slice and dice it, when you have single-family starts up more than 150,000 on an annualized basis over the past twelve months, that has to create jobs."

The surveys don't appear to show those jobs. The answer may be that surveys can’t. "We're probably expecting a little too much when you get down to fine levels of detail," Dietz says. "They're just surveys."